Canberra, 29 July 1971
Confidential
UK/EEC
This is an internal department note of a confidential briefing given to the Department of Foreign Affairs on 9th July by Mr D. H. McKay, Secretary and Mr W.A. McKinnon, Deputy Secretary of the Department of Trade and Industry, about Mr Anthony’s recent visit to EEC capitals, UK, US and Japan. Those present from the Department were Sir Keith Waller, Mr L.H. Border, Deputy Secretary (B), Mr A.J. Eastman, FAS (Def), Mr C.T. Moodie, FAS (PW), Dr J.W.C. Cumes, FAS (IO), Mr A.R. Parsons, FAS (DVP), Mr P.J. Flood, Assistant Secretary, Mr A.M. Campbell and Mr W. E. Weemaes.
2. Sir Keith Waller welcomed Messrs McKay and McKinnon and expressed appreciation for their having come to give the Department a frank account of how the Minister for Trade and Industry and his Department saw UK/EEC issues.
3. Opening the discussion Mr McKay said that there had been some misinterpretation in the Australian press of what Mr Anthony had been putting to the British and of British reactions. It seemed to him that the press had overstressed suggestions that Mr Anthony had been complaining too loudly and had timed his approach to the British too late. These criticisms were not valid and he thought it would be useful to trace the history of dealings with the British on this subject.
4. Cabinet decided in May 1970 to confirm Australia’s former attitude that:
(a) it was for Britain to decide whether or not it wished to join the EEC;
(b) important Australian trade interests stood to be seriously damaged;
(c) the enlargement of the Community should be done on the basis, consistent with GATT, that trade barriers—non-tariff and tariff—were not increased and that export of surpluses generated by the agricultural policies should not be subsidised;
(d) it should be made publicly clear that Australia was doing what it could to influence the UK and the Community in such a way as to cause the least damage to Australia;
(e) Australia’s position should be clearly explained in Brussels and London and Australian representatives in other capitals should do likewise and seek to have other countries stress to the EEC and the UK the importance of compliance with the GATT in that extension of the customs union should not on the whole lead to an increase in trade barriers.
5. Thus although it had been decided that Australia would not stand in the way of enlargement of the EEC, it was natural for Mr McEwen to put to the British and Europeans the problems that would arise for Australia if Britain entered the EEC. Mr McEwen accordingly left aide memoires with the British and the governments of the Six. Mr McEwen had been alarmed when he was told in Brussels that the Community would not consider any question not raised by the British. Mr McEwen had therefore written to Mr Barber requesting that the British raise with the EEC the problems that would arise for Australia in the event of British entry and asking the British to obtain for Australia the longest transitional period possible. A reply came from Barber’s successor, Mr Rippon, who assured Mr McEwen that the British would ask for the longest transitional period they thought possible.
6. Mr Rippon had visited Australia in September last year. Rippon had not gone down well and his visit did not conclude on a friendly note. Neither Mr McEwen nor Mr Anthony were happy with Mr Rippon’s attitude to the problems which would arise for Australia. When his attention was drawn to the problems for the industries concerned, Mr Rippon’s attitude had been that Australia was a wealthy country which could afford the readjustments which would be necessitated by British entry into the EEC. Mr Anthony had taken the opportunity of a previously arranged television appearance to say that he had been disappointed by Mr Rippon’s attitude. Mr Rippon had come to see Mr Anthony the next day and they had exchanged heated words. Mr Rippon had said at a luncheon at the National Press Club in Canberra the following day:
‘I realise that our membership of the Communities may well have repercussions on some sectors of your economy. I am well aware how vital this matter is for some of your farmers in economic and human terms. I promise you that we shall treat it extremely carefully and seriously in close consultation with your Government. This is, when all is said and done, a matter of mutual concern. We have made it plain that we shall seek the longest possible transitional period in which to resolve these initial impact difficulties.’
Mr McKay said that Mr Anthony had these words very much in mind during his subsequent discussions with the British.
7. Mr McKay went on to mention that the press had claimed Australia reacted too late and had four months notice of the change in British policy on the CAP. There was substance in the criticism that Australia had not evolved a satisfactory strategy for dealing with the British in the early part of this year. But there was not a grain of truth in the suggestion that we were consulted in advance about Britain’s change of position in April/May. The ‘Economist’ had claimed that Australia knew of the change on 21st April. However, in briefing the Australian Embassy in Brussels on 22nd April, Kearns1 said that the Six were thinking of a safeguards clause but that the British were still working for progressive introduction of Community preference for CAP items. Without any advance warning to Australia, and in contradiction with previous statements, the British gave in on progressive introduction of Community preference for CAP items on 11th May and accepted the safeguards clause. However, several days after reaching this agreement with the British, Mr Rippon had the temerity to mislead the House of Commons and Australia on 17th May by saying that Britain was still seeking the phasing out of Australian sugar after 1974, and by implication the gradual phasing in of Community preference.
8. Mr McKay said that against the background of the various British assurances Mr Anthony had not reacted over-strongly. He could easily have exposed Rippon by turning over the relevant telegrams and documents to the press. However, he had resisted this temptation. Mr Anthony had never done more than insist that the British stick to their promises. The Minister realised that in negotiations it might become necessary to retreat from a previous position, but in this case it was up to the British to lay their cards on the table. However, the British did not consult Australia on the major change of policy and the nearest approach to consultation was Kearns’ advice on 22nd April that the Six were thinking of a safeguard clause. Kearns had nevertheless gone on to say that the British were sticking out for a transition to community preference on CAP items.
9. Mr McKay went on to discuss the serious problems for Australian butter and sugar arising from the terms accepted by the British. The CAP and community preferences would apply from January, 1973. The community preference for butter was of the order of 8% which could be fatal for the Australian industry’s competitiveness. Britain imported 400,000 tons of butter annually of which Australia supplied 65,000 tons. It would be easy for the present community producers (France and Netherlands), and Denmark to increase production and build up stocks in 1972 to replace, in 1973, the Australian share of the UK market. A phased transition period would have given Australia some protection against this. In 1973 65,000 tons of Australian butter would be forced on to the world market. Japan might be able to absorb a limited share of this amount. Otherwise there were no alternative markets. The effect on the world market price would be damaging. The British had maintained that the safeguards clause would help remedy Australia’s butter problem. However the Europeans had maintained, in the discussions which Mr Anthony had in Brussels, that the safeguards clause would not operate in cases where there was a threat of damage (as the British had publicly maintained) but only in cases of actual damage.
10. Mr McKay went on to discuss the problems for Australian sugar. The International Sugar Agreement, which had achieved prices of £40 to £50 per ton (compared with £15 to £20 before the Agreement), required discipline. The EEC had joined the ISA. Some 350,000 tons of Australian sugar would be displaced from the British market at the end of 1974. A five year transitional period thereafter would have been satisfactory. The British were now saying in effect, in spite of earlier assurances, that there would be no phasing out of Australian sugar after 1974 and that the problem should be discussed in 1974. It would destroy the ISA if Australia put 350,000 tons extra on to the world market in 1975. The alternative, which was totally unreal, was to cut production by 350,000 tons. But why should Australian production be replaced by European sugar beet production? Summing up, McKay said that Mr Anthony had not been unrealistic. He had good reason for adopting the position he had taken.
11. Dr Cumes said he agreed that, in respect of meaningful consultations, the British had again behaved abominably. This had been part of the pattern established over the past ten years in the current and the earlier negotiations. However, we had to realise that the British wanted the negotiations to succeed and when they struck trouble—especially in matters affecting a strong country like Australia—they were loath to allow this trouble to develop into a threat to the negotiations. In effect, therefore, on any but really vital issues, the Six only had to tell the British they would not accept a concession being asked for, and the British usually backed down. They had always been extremely nervous when they struck trouble in the negotiations. He said that for the future it would be better to eschew recriminations and instead have a close look, inter alia, at the safeguards clause and see what we could make of it. He asked whether Trade saw this clause as something more than a gimmick? Mr McKay said that his own view, which he had put to Mr Anthony, was that there was no point in continuing recriminations. Australia was left with the safeguards clause for butter and other products. Australia should therefore adopt the position with the Community that it was up to the Community to see to it that the safeguards clause worked. We should continue, in the interests of the sugar producing countries, to hammer away on sugar with the EEC. If there was no help from the Europeans, Australia would have to decide whether to wreck the world sugar market or cut back production. Mr McKinnon added that the key to the safeguards clause was would French and Dutch farmers hold back their production for the benefit of the Australian farmer?
12. Mr Moodie asked Mr McKay whether it could be said that, until May, Australia should have been more persistent, in private, with the British. Mr McKay said that, with the benefit of hindsight, this seemed to be true. But to have done so would have been a demonstration of a lack of faith in undertakings by British Ministers. Mr McKinnon added that there had been no discussion of agricultural transitional arrangements until April.
13. Dr Cumes enquired about Mr Anthony’s talks with Dr Mansholt. Mr McKay replied that Dr Mansholt had been brutally frank. He said that in his opinion there would be virtually little chance of agricultural trade by third countries with an enlarged EEC. Messrs. Dahrendorf and Deniau had given a similar message. Their position had been that Australia was a wealthy country and that the EEC could not help solve Australia’s problems.
14. In reply to questions from Mr Parsons, Mr McKay said that it would be possible to stimulate action by the developing sugar-producing countries through the Sugar Council of the ISA. On the use of the veto in the EEC, he said that the British, like the French, appeared to favour the use of the veto. In Trade terms, the use of the veto could only be to France’s advantage, since she had the greatest agricultural sector in the EEC. Mr McKay, said that Mr Anthony had suggested in EEC capitals and in Washington that the EEC policy of high internal food prices coupled with the export of food surpluses at low prices would play right into the hands of Japan which could sit back and pursue a cheap food imports policy.
15. Dr Cumes asked for an assessment of the agreement between Britain and the EEC on metals and manufactures. He noted that British Ministers had been making reassuring noises about concessions negotiated on alumina. Mr McKay replied that virtually all Australian manufactures now entered the UK duty free. In future they would face the same low duty, of around 6%, that Japan and the United States now faced. Australian manufacturing exports would be slightly worse off but not to such an extent that Australia could make an issue of it. Mr McKinnon said that on metals the British were suggesting there had been concessions for Australia. The position was that in this area we would ‘do less badly’ than in other areas. The items where the British claimed the solution was good from Australia’s point of view were raw materials essential for their own industry. The CET on alumina of 8% would be progressively reduced to 5.5%. Australia had hitherto not sold alumina to Britain and so it was questionable whether this tariff reduction could be called beneficial or not. The British were dependent on imported alumina, whereas the Six were supplied from within the EEC or its associates. Lead and zinc would have tariff quotas. Lead bullion was sold to a Mt. Isa Mines subsidiary in the UK and this refinery was dependent on supplies of Australian lead bullion Australia would lose its preference for lead and zinc but would have a quota for the amount presently exported to Britain. There was no product where Australia would be better off than before, although it could be argued that in the very long run an enlarged EEC might import greater amounts of Australian raw materials.
16. Mr Flood asked how, in the light of the visit to Tokyo, Mr McKay now assessed the prospects of securing some concession from the Japanese for the dismantling of British preference. Mr McKay said that the Japanese were closely watching our dealings with the British on this subject. It would be for Australia to decide whether for each item concerned the tariff should come down to BPT, go up to the present MFN or go to an intermediate level. The Japanese realised that when the UKATA ended, it would be for Australia to decide what tariffs to adopt. In Mr McKay’s view it would be wrong to burden ourselves with a high tariff where there was no real threat from a Japanese import. The intensive study being undertaken in conjunction with the Tariff Board was not yet completed. Australia would have until early 1973 to resolve these issues which should then be the subject of tariff negotiations.
Dr Cumes commented that he presumed Mr McKay would see these negotiations as being consistent with GATT. Mr McKay said he agreed he preferred multilateral negotiations but we might be obliged to undertake bilateral negotiations. A new Kennedy Round would be the preferred approach. Mr Anthony had told the Japanese that there would have to be generosity from the world’s big traders. The Japanese had emphasised their own farm problems. They would do what they could but they needed time. They wanted an equity in Australian raw materials before they would consider increased access to Japan for Australian agricultural products. In Dr Cumes’ view, we were—leaving aside such things as the safeguards clauses, from which we should try to derive as much advantage as we can—pretty much back to square one. We would have to battle on in GATT as well as bilaterally against agricultural restrictions. A basic question was what support could we expect from the US?
Mr McKinnon said that President Nixon’s special trade adviser, Peterson2 was deeply troubled by the situation where EEC action could cause the world’s two other large traders, Japan and the US to become more protectionist. This was worrying for Australia.
17. On the OECD trade initiative, Mr McKay and Mr McKinnon said they were concerned at the tendency for some Americans to treat the group in part as a tactic for the US to appear to be doing something in the period until the Presidential elections.
18. On Papua/New Guinea Mr McKay said that the Germans had suggested Mr Rippon should be pressed to raise PNG right at the end of the Luxembourg session, but he had declined. As a whole, the PNG exercise was proceeding smoothly and Davis, Thomson3 and our Ambassadors generally, had handled this very well. Ambassadors had also made excellent arrangements for Mr Anthony’s visit. He noted Dr Thomson’s success in arranging functions with all leading Dutch Ministers from the Prime Minister down.
19. In respect of New Zealand, Mr McKinnon noted that because of what Rippon and Marshall had achieved, Australia would be picking up the tab. Nothing was more certain than that New Zealand would be pleading with us to bail them out in two or three years’ time.
20. In reply to Mr Border’s comment about domestic political pressures, Mr McKay said that farmers were notoriously incapable of anticipation. Mr Anthony did not expect them to manifest their concern until they were actually losing their butter markets in 1973.
21. The meeting concluded with some brief discussion about the OECD’s high-level group on trade and on a possible visit to Australia by Germany’s Finance Minister, Mr Schiller.
1 Sir Freddie Kearns, Second Secretary, Ministry of Agriculture, Fisheries and Food.
2 Peter G. Peterson, Assistant to the President for International Economic Affairs.
3 Lloyd Thomson, Australian Ambassador to the Netherlands.
[NAA:A1838,727/4/2 PART 16]